Family Trust Election

[quiggles]

What is this? I only ran across this today, talking to my accountant. Aparently you have to make a family trust election by 1 July or lose the ability to carry losses forward in a trust.

We had rather anticipated being able at least potentially to distribute out beyond our nuclear family and now this doesn't appear to be on the cards. Either that or lose the benefits in significant early losses.

Can someone point me to a detailed resource on this, for the rather intense family discussion that I can feel impending.

 

[GreatPig]

You can have fun reading about this on the ATO Website. Look under Schedule 2F, subdivision 272-D.

SJQ Legal also have a document about this. Select the Pocket Summaries link and look down the list.

Cheers,
GP

 

[quiggles]

Many thanks, GP. I kept on getting errors when trying search ATO yesterday.

 

[quiggles]

Having now read the posts, I am much relieved and a family dispute has been averted. My accountant was a little wrong on the details (off the top of his head, he hasn't come back formally and when he does he'll be right ), but the important parts are OK.

 

[monoply]

I was told (could be wrong) that a discrectionary family trust can only earn up to $5000 in dividends. Once you make more than than in dividends, you start paying 48 cents tax on dividends.

Also discrectionary family trusts cannot carry forward losses.
You need to nominate to be a capital "F" discrectionary family trust to overcome these problems.

Is the only difference between a discrectionary family trust, and capital "F" family trust, that you have to nominate a (test) family member, and can only distibute to the family line of the test individual, or are there other differences?

Cheers
mono

 

[quiggles]

I was told (could be wrong) that a discrectionary family trust can only earn up to $5000 in dividends. Once you make more than than in dividends, you start paying 48 cents tax on dividends.

Also discrectionary family trusts cannot carry forward losses.
You need to nominate to be a capital "F" discrectionary family trust to overcome these problems.

Is the only difference between a discrectionary family trust, and capital "F" family trust, that you have to nominate a (test) family member, and can only distibute to the family line of the test individual, or are there other differences?

Cheers
mono

Can't answer the first question, but the trust only owns real estate ATM, so I can wait. As for the second my trust has in the past been able to carry forward losses without the family trust election, but that finishes at the end of this financial year, hence the need to decide.

 

[monoply]

Quiggles,

Why does this change at the end of financial year? Is there a time period after set up date, on all trusts, to make this election by, or was there a change in the law?

Cheers

 

[GreatPig]

Monoply,

I was told (could be wrong) that a discrectionary family trust can only earn up to $5000 in dividends. Once you make more than than in dividends, you start paying 48 cents tax on dividends.

From that SJQ document I mentioned earlier, one consequence of not making a family trust election is:

Loss of franking credits for a beneficiary – only applies to shares acquired post 1997 (not a consideration where the total franking credits a beneficiary receives from all sources do not exceed $5,000 – see ITAA 1936 section 160APHT).

GP

 

[monoply]

Yes,

Thanks for that SQJ document.
It looks very helpful.

I will have to read it all at some stage.

Cheers
mono

 

[austini]

Hi again Monopoly,

Family trust elections have been discussed previously so the "search" function will result in heaps of great stuff on all sorts of trust related issues including this.

My understanding is that if you want to carry a loss forward and/or claim franking credits exceeding $5,000 then you would have your accountant submit the ATO Election form whenever you normally get your trust's tax return completed.

In relation to carrying losses forward why not setup a Hybrid Discretionary trust rather than a standard discretionary trust and hence eliminate or significantly minimise the possibility of losses being locked up in a trust. HDT's are a much more flexible animal.

If property is mostly your thing then you could perhaps consider using a SMSF or public offer super fund (eg ARF) for the bulk of your direct share investing and have your trust(s) mostly for property. If you use a HDT to invest mainly in property and only have a modest share portfolio in the trust then the need to make an election is unlikely if you have concerns about it.

Making an election is very common. There can be some disadvantages of course but these are not usually a great concern for many of us. As your wealth increases you could setup another trust and nominate your partner as the test individual for that trust if you are the test individual for the first one. That will go some way to ensuring one side of the family doesn't miss out completely should any unlikely problems arise due to making an election.

Cheers - Gordon